Bankruptcy Filings Dip Substantially in May

Bankruptcy filings in May dropped 12.5% on a year-over-year basis. There were almost 123,000 filings in May, which spread over the month's 21 business days, amounted to a daily filing rate of 5,845. That number also represents a 5.4% drop from April 2011. As always, these numbers come courtesy of Epiq Systems.

The drop in May represents the seventh straight month of year-over-year declines in the bankruptcy filing rate. It is the largest year-over-year decline since the trough of bankruptcy filings ended after passage of the 2005 bankruptcy reforms. There appears now to be almost no question that bankruptcy filings in 2011 will be down. Although the May drop is larger than expected, I still believe in my projection of a 5-10% decline for the year.

Lest anyone think the bankruptcy decline means times are great, keep in mind that the absolute number of bankruptcy filings will be between 1,450,000 and 1,500,000, representing over 2,000,000 people (because about 30% of bankruptcy cases are filed jointly by a husband and wife). There is still plenty of misery to go around.

For those who are looking for reasons for the decline in bankruptcy filings, it is because of the increased availability of consumer credit. This trend was apparent by the end of last year and, if anything, has increased in pace. Rather than belabor the point, I will refer readers to a previous post on the relationship between consumer credit and bankruptcy filing rates.

Comments

[Ebenezer Scrooge]

Isn't a bankruptcy averted by new consumer credit merely a bankruptcy delayed by new consumer credit?

[Judge Roy Bean]

I think you'll eventually find that the decrease in filings is as a result of foreclosure mills backing off on foreclosures while the smoke clears on how to cover up the criminal aspects of the disaster.

[Bob Lawless]

In response to Ebenezer Scrooge, I don't disagree with your point from a policy perspective. Statistically, however, the ups and downs of consumer credit are the best predictor of bankruptcy filings.

In response to Judge Roy Bean, I doubt it. There are many things that look related to bankruptcy filing rates -- foreclosures, unemployment -- but the strongest statistical predictor seems to be consumer credit. These other macroeconomic factors undoubtedly play some role, but their effect is not as strong.